Ken Fisher Discusses Investor Sentiment, When to Buy a Home and the Impact of Tariffs – September 2024

Transcript:

Naj Srinivas

Hello and welcome to the Fisher Investments Market Insights podcast, where we discuss our firm's latest thinking on global capital markets and current events.

I’m Naj Srinivas, Executive Vice President of Corporate Communications here at the firm. Today, we’ll hear from founder, Executive Chairman and Co-Chief Investment Officer of Fisher Investments, Ken Fisher.

In this episode of Market Insights, Ken answers some common listener questions to help you better understand the world of finance and investing. 

But before we dive in, I'd like to ask you a favor. Recommend our podcast and rate it wherever you listen. In just a few minutes, you can help make this valuable information available to even more people. Thanks so much for your help, in advance.

With that, let's dig in with this month’s Ken Fisher mailbag. Enjoy.

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Ken Fisher

So every month people send in questions and I always grab a few and, put them on these cards so somebody my age can actually read them. And, then I read them to you, and then I try to give you a short answer. So where are we in the life cycle of this bull market?

Well, I don’t think there’s a right way to be very precise about that. You know, you've heard me before, perhaps, and I always cite John Templeton saying bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. We're not in pessimism. We're well past that. I don't believe we're in skepticism. We're I believe past that. But we're also not in euphoria. And you can measure that lots of different ways. And I've written a lot about this.

I talk about that pretty often. But all the classics and I do for you, there's none of them there. The fact that the market's going up, which some people latch on to and say that euphoria, well, that would have been equally true coming off the bottom of a bear market into the beginning of a bull market, which is clearly not euphoria.

You cannot just take market going up as an indication that there's euphoria. You cannot take the fact that stocks are doing better than people thought as euphoria. You cannot take the notion that there's more people being positive today than a year ago or two years ago as being a sign of euphoria, because that's going to be true all the way through the progression from pessimism to euphoria.

The fact is, I think we're in the early mid phases of optimism and no more than that which might mean we’re some place, don't hold me to this two thirds, three quarters of the way through the bull market. The basis in my mind for the fact that we're there is that economic data, not perfectly so, but mostly so you're regularly coming in better than people expected beforehand, which says to me their sentiment hasn't been high enough. And you can see that in GDP numbers, domestically and particularly overseas. You can see that in inflation numbers, domestic and particularly overseas.

And one of the mistakes that U.S. investors make regularly is not to focus on the reality of global-ness, but just to focus on U.S. But I think that's where we are. I think we're in the early mid phases of optimism, far from euphoria. And the bull market has some, space to run. How long, how far? I don't really know. Surely into 2025. But beyond that, come back and ask me another question in another month in 2025.

Will there ever be a good time to buy a home? Rates are still high, making it a difficult pill to swallow when comparing to the mortgage rates of 21’ and 22’.

Yeah, but not so much when you compare them to the mortgage rates in 1955. You probably just don't remember that. And, the fact of the matter is, it's often a tough pill to buy a home. And it, in fact, is true that owning a home isn't necessarily right for everyone. The reality is, there's also a whole lot of good stuff and bad stuff that comes with owning a home. And yet, in most people's mind, homeownership is a little bit like motherhood, apple pie and The Girl Next Door. It's all deemed to be wonderful. But if you take out the leverage in home ownership, it's actually never been such a great investment. Is it a terrible investment?

No. But is it a better investment than bonds or stocks, net of all costs and adjusted if you take the leverage out of it? Because most people buy a house on a mortgage, you take the leverage out of it and it's actually not such a great thing because most people don't factor in all of the costs, deducting from a purchase price, sale price, all of the cost of property taxes, all of the costs of deferred maintenance, and all of the things you have to do to take care of the place that you don't have to do if you are in, by alternative, renting.

Is there ever a good time to buy a home? Yeah, the time to buy a home is when you like it. Kind of like you want to be there. You want to live there. You'd rather live there than have the insecurities of a rental that you might lose two years from now or whatever. Sure, there's a good time to do it, but it's not really based on economics per se. It's really based on what you can afford, what you will afford.

In some ways, it's not a whole heck of a lot different. It's different. It's bigger. It's more impactful. But it's no different than a lot of the other consumer decisions that you make. You really do it based on whether you can afford it, whether you really want to, whether you're ready to give up other things for it. And, you know, you fall in love with the house, you're going to want to buy it. Is there a right time to do that in the cycle? Ehhhh, I wouldn't go there. I think predicting those kinds of timing issues in homeownership is a fool's errand.

I'm personally curious about your insights on cross-border 10% tariffs on all imported goods, which include American companies, goods like iPhones. Wouldn't it have a massive effect on the economy? This sounds to me awfully like somebody trying to ask me a political question. This coming up right here, as we go into the election and one of the candidates, I can't quite remember who it is, has, you know, been advocating a 10% across the board tariff on all kind of everything.

Let me say what I said when this guy got elected once before. Tariffs don't have the impact that people think they will. They don't have the impact he thinks they will. And they don't have the impact that the questioner obviously thinks they will, which is to be a massive effect on the economy. Let me explain why.

Tariffs, which are a tax imposed on the purchase of items bought from overseas and therefore are picked up by the US consumer, are rarely picked up by the US consumer. Why? Because U.S. and non-U.S. businesses ain't Saddam. They figure out lots of ways to alter what they're doing to get around the tariffs. Let me do this in a different way.

Tariffs. At one level there's a 10% tariff. We're being asked about. Think about if it was a 1,000% tariff or a 5,000% tariff, which would be the equivalent to what happens when governments impose sanctions on countries. You follow me?

If you say anything coming from China, we're not going to buy. It's the same as saying anything we make can't be sold to China. We're going to put a wall between us and China. That wall never works. Why? Because somehow, some way, the black market figures out a way to get stuff through at a brokerage cost, which is more like a fraction of 1% to 2% at the most, not the 10% that you're talking about here.

Think about when the Western world put sanctions on Russian oil as an example, which would be like saying, I'm putting 1,000% tariff on it. What happened? Well Russia sells its oil to other countries that don't do that? They process, put it on a ship and sell it to another country who sells it to another country, and somehow it ends up in the Western world anyway.

What happens when we look at all of, and mind you, this is just a fact or just a fact. If you look at Chinese military gear that's been captured by the intelligence agencies, it's got a whole lot of leading edge U.S. content in it that they're not supposed to have, because we're never supposed to sell it to them.

But somehow, we sold it to somebody who sold it to somebody else, who sold it to somebody else and got into the Chinese gear. You follow that? If you look at the stuff that Iran makes for military, which is not as good as the stuff that the West makes, it's still got a Western component that they were never supposed to have.

Why? Because these walls never work. At a small brokerage commission, folks get around them. So the answer is, would it have an impact? Yeah. Is it good? No. Is it the thing that people fear? No. And whenever people fear something hugely, that is maybe bad, but a whole lot less bad than they feared, relative to the stock market, that's a positive impact.

Why do global stock returns rise over the long term? So I think the answer to that is pretty simple. I think I can make this short. Stock returns in the long term reflect what goes on with the growth and adaptation of business, with the increased input of technology and human knowhow over time to solve human needs.

That's what the stock market on a global basis does, while being discounted in the short term, because most people don't really believe that will happen. Think about it. Once upon a time, we didn't have things like iPhones, smartphones. Once upon a time, we didn't have things like elevators. Once upon a time, we didn't have things like steam engines get replaced by fractional horsepower motor engines. Once upon a time, we didn't have, we didn't have. We didn't have.

The human mind has no ability to predict that stuff in advance. But over ten and 20 years, the amount of that stuff that happens is huge compared to what anybody previously expected. They then take it for granted and start over again when they look at the next 10 to 20 years. This is the reason stocks go up.

The fact of the matter is, if you go back over very long periods of time, correctly calculated indexes, and you look at rolling 20 year periods, not just in the United States, although it's true in the United States, but across Europe. In places like Mexico, the 20 year rolling time periods are always positive. Some places more so than others, of course, but always positive.

Never negative. Why? Because people take for granted what they've got, but they can't envision that same progression of technology leading to new, different and better in the period ahead. Making business better business bigger and more valuable. They can't anticipate that. They always discount it. They always don't believe it'll really happen. They take the past for granted, but they don't extend that same progression into the future. And the market captures that over time.

How do you overcome investor mistakes and how do you get the confidence to jump back in? But that's really two questions. So that's kind of cheating on me here. Right? And the one doesn't really have anything to do with the other one. I can't answer that with one answer. I got to answer that with two answers.

So here's the deal. How do you overcome investor mistakes? Well, let me just say, the investing world is prone to mistakes. The greatest investors of all time are still wrong a big percentage of the time. They're right more than wrong, but they're still wrong a good percentage of the time.

So, you never really overcome mistakes. The line that I've used forever is that the most famous investors of all time, the most legendary ones, you pick em’, I don’t care you who pick, are still wrong 30% of the time. It's just the other 70% that makes up for it because it's more than 2 to 1 factor, 70 divided by 30 is more than 2 to 1.

How do you overcome mistakes? Well, in the beginning you just do it by learning more. I mean, in the first year that I was, in the investment business, when I was 22 years old I read 40 investment books in that first year. And you synthesize from that, and that builds a base, and then you keep learning and you keep looking at what you've done, and you keep trying to embrace. And what do you embrace? You embrace your mistakes. So there's a natural tendency in behavioral psychology for people to do what's known as shunning regret. Shunning regret is like, you know, I bought it, it went up. I'm smart.

That's accumulating pride. I bought it and it went down. I wouldn't have done it if my wife hadn't been nagging me this morning. That’s shunning regret. I bought it, it went up. I'm clever. You want to see me do it again? Accumulating pride, I bought it, it went down. The broker sold it to me. That's shunning regret. Trying to not see your mistakes for what they were as mistakes. The flip side of the coin is you just reverse that and you say, well. Let me learn about what I did wrong. For most people, that's not a very comfortable, emotional thing to do, but that is the way you do that.

The second part of your question was, and how do you get the confidence to jump back in? So, this kind of implies that the mistake before was getting out. Maybe if that's all one question. And the fact is, if you didn't know enough and you got out wrong, which is what this is implying, then you know, maybe you shouldn't be making the decision to get back in. Because if you didn't know when to get out, how do you know when to get in? And the fact of the matter is, if you get that wrong, maybe you should just not be trading so much.

Maybe just be more or less passive, buy and hold, and don't try to do more until you've read those 40 books. And then keep working on the process of learning how to shun your regret, not shun your pride. I wish I had a better answer for you, but that's all I got. Thank you for this month's questions. I hope you send in more questions next month and I'll try to address them.

I hope you found this useful and beneficial.

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Naj Srinivas
That was Ken Fisher answering listener questions as part of his monthly mailbag. Thanks to Ken for sharing his insights with us.

If you want to learn more about the topics discussed today, you can visit the episode page of our website, Fisher Investments.com. You'll find a link to that in the show description. While you’re on our website, you can also subscribe to our weekly digest, which rounds up our latest commentary and delivers it right to your inbox every week. And if you have questions about investing or capital markets that we can cover in a future episode of Market Insights, email us at marketinsights@fi.com.

We'd love to hear from you, and we'll answer as many questions as we can in a future episode.

Until then, I'm Naj Srinivas. Thanks for tuning in.

Disclosure:
Investing in securities involves the risk of loss. Past performance is no guarantee of future returns. The content of this podcast represents the opinions and viewpoints of Fisher Investments and should not be regarded as personal investment advice. No assurances are made we will continue to hold these views, which may change at any time based on new information, analysis, or reconsideration. Copyright Fisher Investments, 2023.

Total run time: 16:43